We have audited the accompanying consolidated balance sheets of Gulf Island Fabrication, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Gulf Island Fabrication, Inc. (together with its subsidiaries, “Gulf Island,” “the Company,” “we,” “us” and “our”) is a leading fabricator of complex steel structures, modules and marine vessels, and a provider of project management, hookup, commissioning, repair, maintenance and civil construction services. Our customers include U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial, power and marine operators; EPC companies; and certain agencies of the U.S. government. We operate and manage our business through two operating divisions (“Shipyard” and “Fabrication & Services”) and one non-operating division (“Corporate”), which represent our reportable segments. Our corporate headquarters is located in Houston, Texas and our operating facilities are located in Houma, Louisiana. See Note 3 for discussion of our closures of the Jennings Yard and Lake Charles Yard.
Significant projects in our backlog include the fabrication of modules for an offshore facility and marine docking structures; material supply for an offshore jacket and deck; and construction of three regional class research vessels, three vehicle ferries, and five towing, salvage and rescue ships. Projects completed in recent years include the expansion of a paddlewheel riverboat; fabrication of an offshore jacket and deck, modules for a petrochemical facility, and a meteorological tower and platform for an offshore wind project, and construction of ten harbor tugs, an ice-breaker tug and two towboats. Other completed projects include the fabrication of wind turbine foundations for the first offshore wind project in the U.S.; and construction of two technologically advanced OSVs, two of the largest liftboats servicing the Gulf of Mexico (“GOM”), one of the deepest production jackets in the GOM, and the first single point anchor reservoir hull fabricated in the U.S.
Basis of Presentation
The accompanying Consolidated Financial Statements (“Financial Statements”) reflect all wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The Financial Statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the U.S. (“GAAP”).
Liquidity Outlook
In recent years our operating results and cash flows have been impacted by lower margins due to competitive pricing, a significant under-utilization of our facilities and losses on certain projects. As a result, we implemented initiatives to improve and maintain our liquidity (including further reducing the compensation of our executive officers and directors and reducing the size of our board), reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas sector, improve our resource utilization and centralize key project resources (including the closures of our Jennings Yard and Lake Charles Yard and combination of our former Fabrication and Services Divisions), and improve our competitiveness and project execution. See Note 10 for discussion of our realigned reportable segments and Note 3 for discussion of our closures of the Jennings Yard and Lake Charles Yard. These initiatives are ongoing, and while our ability to achieve our goals has been negatively impacted by the ongoing global coronavirus pandemic (“COVID-19”) and volatile oil prices (discussed further below) and while we can provide no assurances that the initiatives will achieve our desired results, we believe our cash, cash equivalents and short-term investments will be sufficient to enable us to fund our operating expenses, meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for at least twelve months from the filing date of this Report.
Operating Cycle
The durations of our contracts vary, but typically extend beyond twelve months from the date of contract award. Consistent with industry practice, assets and liabilities have been classified as current under the operating cycle concept whereby all contract-related items are classified as current regardless of whether cash will be received or paid within a twelve-month period. Assets and liabilities classified as current which may not be received or paid within the next twelve months include contract retainage, contract assets, deferred revenue and contract liabilities. Variations from normal contract terms may result in the classification of assets and liabilities as long-term.
F-7
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Use of Estimates
General – The preparation of our Financial Statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We believe our most significant estimates and judgments are associated with revenue recognition for our contracts, including application of the percentage-of-completion method, estimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims and liquidated damages; fair value and recoverability assessments that must be periodically performed with respect to long-lived assets and our assets held for sale; determination of deferred income tax assets, liabilities and related valuation allowances; reserves for bad debts; liabilities related to self-insurance programs; and the impacts of COVID-19 and volatile oil prices on our business, estimates and judgments as discussed further below. If the underlying estimates and assumptions upon which our Financial Statements are based change in the future, actual amounts may differ materially from those included in the Financial Statements.
COVID-19 and Volatile Oil Prices – COVID-19 is a widespread public health crisis that continues to adversely affect global economies and financial markets. In March 2020, the World Health Organization declared COVID-19 a pandemic and the U.S. President announced a national emergency relating to COVID-19. National, state and local authorities recommended physical distancing and many authorities imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. Authorities in some areas of the U.S. began to relax these restrictions in the second quarter 2020. However, the country, including areas where we have our headquarters and operating facilities, experienced multiple periods of resurgence in the numbers of cases of the virus in both the third and fourth quarters of 2020. Authorities have reacted to these resurgences by deferring the phasing out of these restrictions and, in some instances, re-imposing quarantine and isolation measures during the fourth quarter 2020. The measures taken, while intended to protect human life, have had and are expected to continue to have a serious adverse impact on domestic and foreign economies of uncertain severity and duration. Moreover, governmental and commercial responses to COVID-19 have exacerbated the already weakened condition of the energy industry, further reducing the demand for oil, and further depressing and creating volatility in oil prices. On June 8, 2020, the National Bureau of Economic Research indicated that the U.S. economy entered a recession in February 2020, and the duration and severity of this recession, which is ongoing, remains unclear at this time. Any prolonged period of economic slowdown or recession could have a significant adverse effect on our financial condition and financial condition of our customers, subcontractors and other counterparties. The longer-term effectiveness of economic stabilization efforts, including government payments to impacted citizens and industries, is uncertain. Although the U.S. Food and Drug Administration has authorized three COVID-19 vaccines for emergency use, the overall supply of these vaccines may be limited or otherwise hampered by delivery issues, and distribution may therefore be delayed. Even with widespread distribution and acceptance of these vaccines, their long-term efficacy is unknown. The extent to which COVID-19 and the related contraction in oil demand and the resulting reduction and volatility in crude oil prices may adversely impact our business, prospects, financial condition, operating results and cash flows depends on future developments that are highly uncertain and unpredictable. This current level of uncertainty means the ultimate business and financial impacts of COVID-19 and reduction and volatility in crude oil prices cannot be reasonably estimated at this time, but have included, or may include, among other things, reduced bidding activity, suspension or termination of backlog, deterioration of customer financial condition, potential supply disruptions and unanticipated project costs due to project disruptions and schedule delays, lower labor productivity, increased employee and contractor absenteeism and turnover, craft labor hiring challenges, lack of performance by subcontractors and suppliers, and contract disputes. Events and changes in circumstances arising after this Report resulting from the impacts of COVID-19 and volatile oil prices, if any, will be reflected in management’s estimates for future periods.
Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the assumed conversion of dilutive securities. See Note 9 for calculations of our basic and diluted income (loss) per share.
Cash Equivalents and Short-term Investments
Cash Equivalents – We consider investments with original maturities of three months or less when purchased to be cash equivalents.
Short-term Investments – We consider investments with original maturities of more than three months but less than twelve months to be short-term investments. At December 31, 2020, our short-term investments include U.S. Treasuries with original maturities of less than six months. We intend to hold these investments until maturity, and it is not more likely than not that we would be required to sell the investments prior to their maturity. The investments are stated at amortized costs, which approximates fair value due to their near-term maturities. All short-term investments are traded on active markets with quoted prices and represent level 1 fair value measurements.
F-8
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Inventory
Inventory is recorded at the lower of cost or net realizable value determined using the first-in-first-out basis. The cost of inventory includes acquisition costs, production or conversion costs, and other costs incurred to bring the inventory to a current location and condition. Net realizable value is our estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation. An allowance for excess or inactive inventory is recorded based on an analysis that considers current inventory levels, historical usage patterns, estimates of future sales and salvage value. See Note 3 for further discussion of our inventory impairments.
Allowance for Doubtful Accounts
In the normal course of business, we extend credit to our customers on a short-term basis and contract receivables are generally not collateralized; however, we typically have the right to place liens on our projects in the event of nonpayment by our customers. We routinely review individual contract receivable balances for collectability and make provisions for probable uncollectible amounts as necessary. Among the factors considered in our review are the financial condition of our customer and its access to financing, underlying disputes with the customer, the age and value of the receivable balance, and economic conditions in general. See Note 2 for further discussion of our allowance for doubtful accounts.
Stock-Based Compensation
Awards under our stock-based compensation plans are calculated using a fair value-based measurement method. We use the straight-line method to recognize share-based compensation expense over the requisite service period of the award. We recognize the excess tax benefit or tax deficiency resulting from the difference between the deduction we receive for tax purposes and the stock-based compensation expense we recognize for financial reporting purposes created when common stock vests, as an income tax benefit or expense on our Consolidated Statements of Operations (“Statement of Operations”). See Note 7 for further discussion of our stock-based and other compensation plans.
Tax payments made on behalf of employees to taxing authorities in order to satisfy employee income tax withholding obligations from the vesting of shares under our stock-based compensation plans are classified as a financing activity on our Consolidated Statements of Cash Flows (“Statement of Cash Flows”).
Assets Held for Sale
Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. See Note 3 for further discussion of our assets held for sale.
Depreciation Expense
Property, plant and equipment are depreciated on a straight-line basis over estimated useful lives ranging from three to 25 years. Ordinary maintenance and repairs, which do not extend the physical or economic lives of the plant or equipment, are charged to expense as incurred. See Note 4 for further discussion of our property, plant and equipment.
Long-Lived Assets
Long-lived assets, which include property, plant and equipment and our lease assets included within other noncurrent assets, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, we compare the estimated future undiscounted cash flow associated with the asset or asset group to its carrying amount to determine if an impairment exists. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other assets or asset groups. An impairment loss is measured by comparing the fair value of the asset or asset group to its carrying amount and the excess of the carrying amount of the asset or asset group over its fair value is recorded as an impairment charge. Fair value is determined based on discounted cash flows, appraised values or third-party indications of value, as appropriate. See Note 3 for further discussion of our long-lived asset impairments.
Leases
We record a right-of-use asset and an offsetting lease liability on our Balance Sheet equal to the present value of our lease payments for leases with an original term of longer than twelve months. We do not record an asset or liability for leases with an original term of twelve months or less and we do not separate lease and non-lease components for our leases. Our lease assets are reflected within other noncurrent assets, and the current and noncurrent portions of our lease liabilities are reflected within accrued expenses and other liabilities, and other noncurrent liabilities, respectively, on our Balance Sheet. For leases with escalations over the life of the lease, we recognize expense on a straight-line basis. See Note 4 for further discussion of our lease assets and liabilities.
F-9
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Fair Value Measurements
Fair value determinations for financial assets and liabilities are based on the particular facts and circumstances. Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The three levels of the valuation hierarchy are as follows:
|
•
|
Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets.
|
|
•
|
Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market.
|
|
•
|
Level 3 – inputs are based upon model-based valuation techniques for which significant assumptions are generally not observable in the market and typically reflect estimates and assumptions that we believe market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques.
|
The carrying amounts of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate their fair values. We determined that our impairments of inventory, long-lived assets and assets held for sale are non-recurring fair value measurements that fall within Level 3 of the fair value hierarchy. See Note 3 for further discussion of impairments of our inventory, long-lived assets and assets held for sale.
Revenue Recognition
General – Our revenue is derived from customer contracts and agreements that are awarded on a competitively bid and negotiated basis using a range of contracting options, including fixed-price, unit-rate and T&M. Our contracts primarily relate to the fabrication and construction of steel structures, modules and marine vessels, and project management services and other service arrangements. We recognize revenue from our contracts in accordance with Accounting Standards Update (“ASU”) 2014-09, Topic 606 “Revenue from Contracts with Customers” (“Topic 606”).
Topic 606 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, provisions of Topic 606 specify which goods and services are distinct and represent separate performance obligations (representing the unit of account in Topic 606) within a contract and which goods and services (which could include multiple contracts or agreements) should be aggregated. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue for performance obligations satisfied over time are recognized as the work progresses. Revenue for performance obligations that do not meet the criteria for over time recognition are recognized at a point-in-time when a performance obligation is complete and the customer has obtained control of a promised asset.
Fixed-Price and Unit-Rate Contracts – Revenue for our fixed-price and unit-rate contracts is recognized using the percentage-of-completion method based on contract costs incurred to date compared to total estimated contract costs (an input method). Contract costs include direct costs, such as materials and labor, and indirect costs attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the extent of costs incurred. Revenue and gross profit for contracts accounted for using the percentage-of-completion method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Although our customers retain the right and ability to change, modify or discontinue further work at any stage of a contract, in the event our customers discontinue work, they are required to compensate us for the work performed to date. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on contracts. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates, which could result in material changes to our Financial Statements and related disclosures. See Note 2 for further discussion of projects with significant changes in estimated margins during 2020, 2019 and 2018.
T&M Contracts – Revenue for our T&M contracts is recognized at contracted rates when the work is performed, the costs are incurred and collection is reasonably assured. Our T&M contracts provide for labor and materials to be billed at rates specified within the contract. The consideration from the customer directly corresponds to the value of our performance completed at the time of invoicing.
F-10
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Variable Consideration – Revenue and gross profit for contracts can be significantly affected by variable consideration, which can be in the form of unapproved change orders, claims, incentives and liquidated damages that may not be resolved until the later stages of the contract or after the contract has been completed. We estimate variable consideration based on the amount we expect to be entitled and include estimated amounts in transaction price to the extent it is probable that a significant future reversal of cumulative revenue recognized will not occur or when we conclude that any significant uncertainty associated with the variable consideration is resolved. See Note 2 for further discussion of our unapproved change orders, claims, incentives and liquidated damages.
Additional Disclosures – Topic 606 also requires disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. See Note 2 for required disclosures under Topic 606.
Pre-Contract Costs
Pre-contract costs are generally charged to cost of revenue as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. At December 31, 2020 and 2019, we had no deferred pre-contract costs.
Other (Income) Expense, Net
Other (income) expense, net, generally represents recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of property and equipment other than assets held for sale, and income or expense associated with certain nonrecurring items. For 2020, other (income) expense also includes a gain of $10.0 million associated with the settlement of a contract dispute for a project completed in 2015 and charges of $1.3 million associated with damage caused by Hurricane Laura. See Note 2 for further discussion of the impacts of Hurricane Laura.
Income Taxes
Income taxes have been provided using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted rates expected to be in effect during the year in which the differences are expected to reverse. Due to changing tax laws, significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future.
A valuation allowance is provided to reserve for deferred tax assets (“DTA(s)”) if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized. The realization of our DTAs depends on our ability to generate sufficient taxable income of the appropriate character and in the appropriate jurisdictions.
Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense. See Note 6 for further discussion of our income taxes and DTAs.
New Accounting Standards
Financial instruments – In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, short-term investments, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. ASU 2016-13 will be effective for us in the first quarter 2023. Early adoption of the new standard is permitted; however, we have not elected to early adopt the standard. The new standard is required to be applied using a cumulative-effect transition method. We are evaluating the effect that the new standard will have on our financial position, results of operations and related disclosures.
Income taxes – In December 2019, the FASB issued ASU 2019-12, “Income Taxes,” to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. The new standard will be effective for us in the first quarter 2021. We do not believe the new standard will have a material effect on our financial position, results of operations or related disclosures.
F-11
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS
As discussed in Note 1, we recognize revenue for our contracts in accordance with Topic 606. Summarized below are required disclosures under Topic 606 and other relevant guidance.
Disaggregation of Revenue
The following tables summarize revenue for each of our operating segments, disaggregated by contract type, for 2020, 2019 and 2018 (in thousands):
|
|
Year Ended December 31, 2020
|
|
Contract Type
|
|
Shipyard
|
|
|
F&S
|
|
|
Eliminations
|
|
|
Total
|
|
Fixed-price and unit-rate (1)
|
|
$
|
151,508
|
|
|
$
|
66,790
|
|
|
$
|
(148
|
)
|
|
$
|
218,150
|
|
T&M (2)
|
|
|
2,190
|
|
|
|
25,294
|
|
|
|
(388
|
)
|
|
|
27,096
|
|
Other
|
|
|
—
|
|
|
|
7,401
|
|
|
|
(1,688
|
)
|
|
|
5,713
|
|
Total
|
|
$
|
153,698
|
|
|
$
|
99,485
|
|
|
$
|
(2,224
|
)
|
|
$
|
250,959
|
|
|
|
Year Ended December 31, 2019 (3)
|
|
Contract Type
|
|
Shipyard
|
|
|
F&S
|
|
|
Eliminations
|
|
|
Total
|
|
Fixed-price and unit-rate (1)
|
|
$
|
161,839
|
|
|
$
|
86,211
|
|
|
$
|
(430
|
)
|
|
$
|
247,620
|
|
T&M (2)
|
|
|
6,627
|
|
|
|
41,014
|
|
|
|
—
|
|
|
|
47,641
|
|
Other
|
|
|
—
|
|
|
|
9,944
|
|
|
|
(1,897
|
)
|
|
|
8,047
|
|
Total
|
|
$
|
168,466
|
|
|
$
|
137,169
|
|
|
$
|
(2,327
|
)
|
|
$
|
303,308
|
|
|
|
Year Ended December 31, 2018 (3)
|
|
Contract Type
|
|
Shipyard
|
|
|
F&S
|
|
|
Eliminations
|
|
|
Total
|
|
Fixed-price and unit-rate (1)
|
|
$
|
88,887
|
|
|
$
|
77,318
|
|
|
$
|
(700
|
)
|
|
$
|
165,505
|
|
T&M (2)
|
|
|
7,537
|
|
|
|
43,481
|
|
|
|
—
|
|
|
|
51,018
|
|
Other
|
|
|
—
|
|
|
|
5,896
|
|
|
|
(1,172
|
)
|
|
|
4,724
|
|
Total
|
|
$
|
96,424
|
|
|
$
|
126,695
|
|
|
$
|
(1,872
|
)
|
|
$
|
221,247
|
|
|
(1)
|
Revenue is recognized as the contract is progressed over time.
|
|
(2)
|
Revenue is recognized at contracted rates when the work is performed and costs are incurred.
|
|
(3)
|
See Note 10 for discussion of our realigned operating divisions.
|
Future Performance Obligations Required Under Contracts
The following table summarizes our remaining performance obligations by operating segment at December 31, 2020 (in thousands).
Segment
|
|
Performance
Obligations
|
|
Shipyard
|
|
$
|
352,181
|
|
F&S
|
|
|
19,381
|
|
Total
|
|
$
|
371,562
|
|
We expect to recognize revenue for our remaining performance obligations at December 31, 2020, in the following periods (in thousands):
Year
|
|
Total
|
|
2021
|
|
$
|
161,370
|
|
2022
|
|
|
140,018
|
|
2022 and beyond
|
|
|
70,174
|
|
Total
|
|
$
|
371,562
|
|
F-12
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Contracts Assets and Liabilities
Revenue recognition and customer invoicing for our fixed-price and unit-rate contracts may occur at different times. Revenue recognition is based upon our estimated percentage-of-completion as discussed in Note 1; however, customer invoicing is generally dependent upon predetermined billing terms, which could provide for customer payments in advance of performing the work, milestone billings based on the completion of certain phases of the work, or billings when services are provided. Revenue recognized in excess of amounts billed is reflected as contract assets on our Balance Sheet. Amounts billed in excess of revenue recognized, and accrued contract losses, are reflected as contract liabilities on our Balance Sheet. Information with respect to uncompleted contracts at December 31, 2020 and 2019 is as follows (in thousands):
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Costs incurred on uncompleted contracts
|
|
$
|
328,229
|
|
|
$
|
386,932
|
|
Estimated loss incurred to date
|
|
|
(19,617
|
)
|
|
|
(48,895
|
)
|
Sub-total
|
|
|
308,612
|
|
|
|
338,037
|
|
Billings to date
|
|
|
(256,220
|
)
|
|
|
(295,136
|
)
|
Deferred revenue (1)
|
|
|
—
|
|
|
|
(4,592
|
)
|
Total
|
|
$
|
52,392
|
|
|
$
|
38,309
|
|
The above amounts are included within the following captions on our Balance Sheet at December 31, 2020 and 2019 (in thousands):
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Contract assets (2)
|
|
$
|
67,521
|
|
|
$
|
52,128
|
|
Contract liabilities (2), (3), (4)
|
|
|
(15,129
|
)
|
|
|
(26,271
|
)
|
Sub-total
|
|
|
52,392
|
|
|
|
25,857
|
|
Contract assets, noncurrent (1)
|
|
|
—
|
|
|
|
12,452
|
|
Total
|
|
$
|
52,392
|
|
|
$
|
38,309
|
|
|
(1)
|
We have contracts for the construction of two MPSVs that are subject to purported termination by our customer. Our net contract asset, accrued contract losses and deferred revenue balances at the time of the customer’s purported terminations of the contracts totaled $12.5 million and such amount has been reflected within other noncurrent assets on our Balance Sheet at December 31, 2020 and 2019. Although the net contract asset of $12.5 million was included within other noncurrent assets on our Balance Sheet at December 31, 2020, the information with respect to such contracts is not presented in the tables above at December 31, 2020 given the prolonged nature of the dispute. See Note 8 for further discussion of our MPSV contracts.
|
|
(2)
|
The increase in contract assets compared to December 31, 2019, was primarily due to increased unbilled positions on three projects in our Shipyard Division, offset partially by decreased unbilled positions on four projects in our Shipyard Division and a project in our Fabrication & Services Division. The decrease in contract liabilities compared to December 31, 2019, was primarily due to the unwind of advance payments on two projects in our Shipyard Division and two projects in our Fabrication & Services Division, offset partially by advance payments on a project in our Shipyard Division.
|
|
(3)
|
Revenue recognized during 2020, 2019 and 2018 related to amounts included in our contract liabilities balance at December 31, 2019, 2018 and 2017, was $18.2 million, $14.3 million and $5.1 million, respectively.
|
F-13
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
|
Contract liabilities at December 31, 2020 and 2019, includes accrued contract losses of $8.6 million and $6.4 million, respectively. See “Changes in Project Estimates” below for further discussion of our accrued contract losses.
|
Significant Customers
We are not dependent on any one customer, and the revenue derived from each customer varies from year to year based on new project awards for each customer. However, for 2020, 2019 and 2018, certain customers individually accounted for 10% or more of our consolidated revenue as follows (in thousands):
|
|
Years Ended December, 31
|
|
Customer
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
A
|
|
$
|
37,986
|
|
|
$
|
52,310
|
|
|
*
|
|
B
|
|
|
77,342
|
|
|
|
39,897
|
|
|
*
|
|
C
|
|
*
|
|
|
|
36,175
|
|
|
|
49,123
|
|
D
|
|
*
|
|
|
|
34,448
|
|
|
*
|
|
E
|
|
*
|
|
|
*
|
|
|
|
25,873
|
|
F
|
|
*
|
|
|
*
|
|
|
|
23,279
|
|
G
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
The customer revenue was less than 10% of consolidated revenue for the year.
|
Allowance for Doubtful Accounts
Our provision for bad debts is included in other (income) expense, net on our Statement of Operations. Our provision for bad debts for 2020, 2019 and 2018, and our allowance for doubtful accounts at December 31, 2020 and 2019, were not significant.
Variable Consideration
For 2019, 2018 and 2017, we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at December 31, 2020 and 2019, certain uncompleted projects reflected a reduction in contract price for liquidated damages of $0.6 million and $12.9 million, respectively, of which $11.2 million of the liquidated damages at December 31, 2019 relate to purported liquidated damages on our contracts for the construction of two MPSVs that are subject to purported notices of termination by our customer. As discussed under “Contract Assets and Liabilities” above, we had a net contract asset at December 31, 2020 and 2019, of $12.5 million (inclusive of the impact of the purported liquidated damages previously recorded) related to these contracts; however, the liquidated damages with respect to these contracts is not presented in our variable consideration disclosure at December 31, 2020. See Note 8 for further discussion of our MPSV contracts.
Changes in Project Estimates
Changes in Estimates for 2020 – For 2020, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $16.6 million and positively impacted operating results for our Fabrication & Services Division by $2.7 million. The changes in estimates were associated with the following:
Shipyard Division
|
•
|
Towing, Salvage and Rescue Ship Projects – Negative impact for 2020 of $7.3 million resulting from increased forecast costs for our five towing, salvage and rescue ship projects, primarily associated with increased craft labor and subcontracted services costs and extensions of schedules. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects and higher cost estimates for subcontracted services resulting from the current and forecasted impacts of COVID-19 associated primarily with engineering delays, increased employee and contractor absenteeism and turnover, challenges recruiting and hiring craft labor, physical distancing measures, and disruption and inefficiencies related to the aforementioned and the need to re-sequence construction activities. The impacts were also due to additional anticipated craft labor associated with more complex piping and other construction activities identified as we achieved further completion of production engineering. We have submitted a request for equitable adjustment to our customer, the U.S. Navy, to extend our project schedules and recover the increased forecast costs associated with the impacts of COVID-19; however, we can provide no assurances that we will be successful recovering these costs. Our forecasts at December 31, 2020 do not reflect potential future benefits, if any, from the favorable resolution of the request for equitable adjustment. Our forecasts reflect minimal craft labor productivity improvements from the first vessel to each follow-on vessel. At December 31, 2020, the projects were at varying stages of completion ranging from approximately 10% to 60% and are forecast to be completed at varying dates from 2022 through 2024, subject to the potential schedule impacts referenced above. The first three vessels were in a loss position at December 31, 2020 and our reserve for estimated losses was $3.2 million. The last two vessels were approximately break-even. If future craft labor productivity and subcontractor costs differ from our current estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, we are unable to achieve our progress estimates or our schedules are further extended, the projects would experience further losses. See “Other Project Matters” below for further discussion of our towing, salvage and rescue ship projects.
|
F-14
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
•
|
Harbor Tug Projects – Negative impact for 2020 of $1.0 million resulting from increased forecast costs for our final two (ninth and tenth) harbor tug projects in our Jennings Yard, primarily associated with increased craft labor and subcontracted services costs and extensions of schedules. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from the wind down of the Jennings Yard in connection with its closure in the fourth quarter 2020 and the impacts of COVID-19 associated primarily with physical distancing measures. The ninth vessel was completed in the fourth quarter 2020 and the tenth vessel was completed in January 2021.
|
|
•
|
Forty-Vehicle Ferry Projects – Negative impact for 2020 of $7.2 million resulting from increased forecast costs and forecast liquidated damages for our two forty-vehicle ferry projects ($6.2 million for the first vessel and $1.0 million for the second vessel), primarily associated with increased craft labor and material costs and extensions of schedules. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from the current and forecasted impacts of COVID-19 and additional factors specific to each vessel as described further below:
|
|
-
|
Second Forty-Vehicle Ferry Project (see discussion of first vessel below) – The impacts for the second vessel were also due to construction rework and disruptions caused by structural design deficiencies for the vessel, which resulted in deflection issues within the plating of the vessel. We believe the impacts of the design deficiencies should be the responsibility of the customer. Accordingly, we will be submitting a claim to our customer to extend our project schedules and recover the increased forecast costs associated with the impacts of the design deficiencies; however, we can provide no assurances that we will be successful recovering these costs. Our forecast at December 31, 2020 does not reflect potential future benefits, if any, from the favorable resolution of the claim. At December 31, 2020, the second vessel was approximately 80% complete and is forecast to be completed in the second quarter 2021.
|
|
-
|
First Forty-Vehicle Ferry Project – The impacts for the first vessel were also due to construction rework, including reconstruction of previously completed portions of the vessel, resulting from the determination that portions of the vessel structure were outside of acceptable tolerance levels. The previous construction activities were performed by our former Fabrication Division prior to transferring management and project execution responsibility of the vessels to our Shipyard Division in the first quarter 2020 as discussed further in Note 10. The impacts were also due to the determination that construction of a new hull for the vessel is the most appropriate course of action as further discussed below.
|
During the third quarter 2020, the first vessel was damaged by an overhead crane, which disengaged from its tracks, and landed on the hull that was under construction. As a result of this damage to the hull, coupled with prior rework on the vessel, and associated concerns regarding the acceptable tolerance levels of the hull, in October 2020 our customer issued a rejection letter indicating that they would not accept a reconstructed hull, and requested the fabrication of a new hull. Accordingly, we ceased construction activities on the vessel as we evaluated our options, including remediation actions that could potentially be taken in lieu of fabricating a new hull. We also began discussions with our insurer regarding the impacts of the crane incident and the coverage that would apply to any cost increases for remediation actions or the fabrication of a new hull. Based on our preliminary estimates, we believed the incremental forecast costs resulting from the aforementioned could range from $1.0 million to $4.0 million (before consideration of insurance coverage), with such range of cost being highly dependent on the course of action ultimately taken with respect to the hull, which ranged from remediation actions to repair the hull to the fabrication of a new hull. Further, the ultimate cost to us was dependent upon any insurance proceeds received in connection with the crane incident. Due to the uncertainty with respect to the corrective actions that potentially could be taken regarding the hull and any insurance coverage that would apply, we were unable to estimate the amount we would likely incur from the crane incident. Accordingly, at September 30, 2020, we accrued our deductible of $0.1 million associated with our insurance coverage, representing the minimum amount we would incur for the crane incident. However, we have now determined that fabrication of a new hull is the most appropriate course of action due to, among other things, quality and cost uncertainties associated with repairing the hull, resulting in an increase in forecast costs of $4.1 million (included in the above referenced impacts for the year), inclusive of insurance proceeds, which were not material. We have ceased all work on the vessel and are in discussions with the customer regarding a path forward for recommencement of construction of the vessel.
We have also determined that the structural design deficiencies identified for the second vessel are applicable to the first vessel, which contributed to the aforementioned rework and construction challenges experienced on the first vessel. We will be submitting a claim to our customer to extend our project schedules and recover the increased costs associated with the impacts of the design deficiencies; however, we can provide no assurances that we will be successful recovering these costs. Our forecast at December 31, 2020 does not reflect potential future benefits, if any, from the favorable resolution of the claim. The completion date of the first vessel is uncertain due to the ongoing discussions with the customer; however, we currently do not anticipate completion in 2021.
F-15
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The projects were in a loss position at December 31, 2020 and our reserve for estimated losses was $4.8 million. If future craft labor productivity and subcontractor costs differ from our current estimates, we are unable to achieve our progress estimates, our schedules are further extended or the projects incur additional schedule liquidated damages, the projects would experience further losses. We would also experience further losses if we were to incur further unanticipated costs associated with the design deficiencies, including fabrication of the new hull for the first vessel.
|
•
|
Seventy-Vehicle Ferry Project – Negative impact for 2020 of $1.1 million resulting from increased forecast costs for our seventy-vehicle ferry project, primarily associated with increased craft labor and subcontracted services costs and extensions of schedule. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from the current and forecasted impacts of COVID-19 and our inability to achieve previously anticipated improvements in productivity. The impacts were also due to additional anticipated craft labor associated with more complex piping and other construction activities identified as we achieved further completion of production engineering. At December 31, 2020, the vessel was approximately 55% complete and is forecast to be completed in the fourth quarter 2021. The project was in a loss position at December 31, 2020 and our reserve for estimated losses was $0.5 million. If future craft labor productivity and subcontractor costs differ from our current estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, we are unable to achieve our progress estimates, our schedules are further extended or the project incurs schedule liquidated damages, the project would experience further losses.
|
|
•
|
Research Vessel Projects – As discussed further below, we agreed to a change order with our customer for our research vessel projects that, among other things, provided for the customer’s assumption of responsibility for production engineering for the project. Further, we made a collective decision with our customer to delay construction activities on the projects until production engineering achieves a satisfactory level of completion to limit the impacts on construction, including disruption and rework. These construction delays are expected to continue in the near term due to production engineering delays experienced by our customer’s engineering subcontractor as a result of COVID-19. We are currently working collaboratively with the customer to identify opportunities to commence construction activities in advance of full completion of production engineering to minimize the schedule impacts to the projects. Based on our current forecast cost to complete the projects, the change order and collaborative nature of our discussions with the customer, we are not forecasting losses on the projects. However, as discussed further below, we are continuing to recognize revenue equal to costs on the projects until we are able to reasonably estimate the amount of gross profit, if any, expected to be realized on the projects. We anticipate being able to make such an estimate upon substantial completion of production engineering. If the projects experience further delays associated with production engineering or other matters, we are unable to achieve our progress estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, our schedules are further extended or the projects incur schedule liquidated damages, future craft labor productivity and subcontractor costs differ from our current estimates, or we are unable to recover the costs of any of the aforementioned from our customer, the projects would experience losses.
|
Fabrication & Services Division
|
•
|
Jacket and Deck Project – Positive impact for 2020 of $1.2 million resulting from reduced forecast costs and increased contract price for our jacket and deck project, primarily associated with reduced subcontracted services costs, approved change orders and incentives. The impacts were primarily due to favorable resolution of customer and subcontractor change orders and realization of project incentives. At December 31, 2020, the project was complete.
|
|
•
|
Paddlewheel Riverboat and Subsea Components Projects – Positive impact for 2020 of $1.5 million resulting from reduced forecast costs and increased contract price for our paddlewheel riverboat and subsea components projects, primarily associated with reduced craft labor and subcontracted services costs and approved change orders. The impacts were primarily due to better than anticipated labor productivity and favorable resolution of customer and subcontractor change orders. At December 31, 2020, both projects were complete.
|
Changes in Estimates for 2019 – For 2019, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $12.3 million and negatively impacted operating results for our Fabrication & Services Division by $4.9 million. The changes in estimates were associated with the following:
Shipyard Division
|
•
|
Harbor Tug Projects – Negative impact for 2019 of $4.9 million resulting from increased forecast costs and forecast liquidated damages for our harbor tug projects, primarily associated with increased craft labor, subcontracted services costs and extensions of schedule. The impacts were primarily due to lower than anticipated craft labor productivity and progress resulting from limitations in craft labor availability and the required use of contract labor in lieu of direct hire labor, the need to supplement and re-perform work for an under-performing paint subcontractor, higher than anticipated costs for paint scopes that were assumed by us from our paint subcontractor, higher cost estimates from our electrical and instrumentation subcontractor, our inability to achieve previously anticipated labor productivity improvements, and expectations of future labor productivity. The projects were in a loss position at December 31, 2019 and our reserve for estimated losses was $1.6 million. See “Changes in Estimates for 2020” above for further discussion of the status of these projects.
|
F-16
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
•
|
Forty-Vehicle Ferry Projects – Negative impact for 2019 of $5.1 million resulting from increased forecast costs and forecast liquidated damages for our two forty-vehicle ferry projects, primarily associated with increased craft labor and subcontracted services and materials costs. The impacts were primarily due to greater than anticipated rework, lower than anticipated productivity experienced primarily during the fourth quarter 2019, and our expectations of future labor productivity. The projects were in a loss position at December 31, 2019 and our reserve for estimated losses was $3.0 million. See “Changes in Estimates for 2020” above for further discussion of the status of these projects.
|
|
•
|
Ice-Breaker Tug Project – Negative impact for 2019 of $1.5 million resulting from increased forecast costs for our ice-breaker tug project, primarily associated with increased craft labor, subcontracted services costs and extension of schedule. The impacts were primarily due to construction rework and disruption and lower than anticipated craft labor productivity and progress on the project resulting from incomplete and deficient subcontracted production engineering, higher cost estimates from our various subcontractors, difficulties encountered to launch the vessel, and anticipated higher costs to deliver the vessel. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $0.1 million. At December 31, 2020, the project was complete.
|
|
•
|
Research Vessel Projects – Negative impact for 2019 of $0.8 million resulting from the reversal of gross profit recognized prior to 2019 for our three research vessel projects. The projects experienced difficulties with subcontracted production engineering, due in part to vessel size constraints and complexities associated with vessel functionality, which resulted in incomplete and deficient production engineering and construction delays, disruption and rework. As a result, we made a collective decision with our customer to delay construction activities on the projects until production engineering achieves a satisfactory level of completion to limit further impacts on construction, including disruption and rework. In addition, we agreed to a change order with the customer that included the following:
|
|
-
|
The replacement of the current subcontracted production engineering firm with a different engineering subcontractor that was contracted directly by the customer;
|
|
-
|
Extensions of the schedule liquidated damages dates for the projects; and
|
|
-
|
Increases in project price for the contracts to account for the estimated cost impacts of the production engineering and construction delays.
|
Based on our forecast cost to complete the projects, the change order and collaborative nature of our discussions with the customer, we are not forecasting losses on the projects. However, due to uncertainties with respect to the timing of completion of production engineering and the potential impacts on our construction schedules and costs, as well as ongoing discussions with the customer, we are unable to reasonably estimate the amount of gross profit, if any, that will ultimately be realized on the projects. Accordingly, during the fourth quarter 2019 we reversed all previously recognized gross profit on the projects (including the reversal of $2.5 million of gross profit that was recognized prior to the fourth quarter 2019) and are recognizing revenue equal to costs on the projects until we are able to reasonably estimate the amount of gross profit, if any, expected to be realized on the projects. See “Changes in Estimates for 2020” above for further discussion of the status of these projects.
Fabrication & Services Division
|
•
|
Paddle Wheel River Boat Project – Negative impact for 2019 of $1.3 million resulting from increased forecast costs for our paddle wheel river boat project, primarily associated with increased craft labor costs. The impacts were primarily due to difficulties encountered in commissioning the vessel and the need to accelerate our schedule, including performing out of sequence work scopes, to enable subcontracted works scopes to commence and mitigate the schedule and cost impacts of delaying the subcontracted work scopes. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $0.2 million. At December 31, 2020, the project was complete.
|
|
•
|
Jacket and Deck Project – Negative impact for 2019 of $2.0 million resulting from increased forecast costs and forecast liquidated damages for our jacket and deck project, primarily associated with increased subcontracted services costs and extensions of schedule. The impacts were primarily due to higher than anticipated cost estimates from our commissioning subcontractors and delays associated with customer related directives. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $1.1 million. At December 31, 2020, the project was complete.
|
|
•
|
Subsea Components Project – Negative impact for 2019 of $1.6 million resulting from increased forecast costs and liquidated damages for our subsea components project, primarily associated with increased craft labor, subcontracted services and materials costs and extensions of schedule. The impacts were primarily due to additional craft labor, materials costs and subcontracted services costs and support resulting from stringent welding procedure requirements and customer specifications. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $0.2 million. At December 31, 2020, the project was complete.
|
F-17
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Changes in estimates for 2018 – For 2018, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $2.4 million and negatively impacted operating results of our Fabrication & Services Division by $6.7 million. The changes in estimates were associated with the following:
Shipyard Division
|
•
|
Harbor Tug Projects – Negative impact for 2018 of $6.7 million resulting from increased forecast costs and liquidated damages for our harbor tug projects, primarily associated with craft labor costs and extensions of schedule. The impacts were primarily due to lower than anticipated craft labor productivity related to pipe installation and testing. See “Changes in Estimates for 2020” above for further discussion of the status of these projects.
|
Fabrication & Services Division
|
•
|
Petrochemical Modules Project – Negative impact for 2018 of $2.4 million resulting from increased forecast costs for our petrochemical modules project, primarily associated with increased subcontracted services costs. The impacts were primarily due to higher cost estimates from our insulation and other subcontractors. At December 31, 2020, the project was complete.
|
Other Project Matters
Hurricane Laura – In August 2020, Hurricane Laura made landfall as a high-end Category 4 hurricane in Lake Charles, Louisiana, where its high winds and flooding caused significant damage throughout the region. At our Lake Charles Yard, Hurricane Laura primarily damaged drydocks, warehouses, bulkheads and our ninth harbor tug project which was nearing completion and subsequently completed in the fourth quarter 2020. As a result, during 2020, we recorded charges of $1.3 million related to deductibles associated with our builder’s risk, equipment, property and marine liability insurance coverages, and our preliminary estimates of cost associated with uninsurable damage, primarily for bulkheads. The charges are included in other (income) expense, net on our Statement of Operations.
Project Tariffs – Certain imported materials used, or forecast to be used, for our projects are currently subject to existing, new or increased tariffs or duties. We believe such amounts, if incurred, are recoverable from our customers under the contractual provisions of our contracts; however, we can provide no assurances that we will successfully recover such amounts.
Towing, Salvage and Rescue Ship Project Change Order – Our contract for the construction of our five towing, salvage and rescue ships contains options which grant our customer, the U.S. Navy, the right, if exercised, for the construction of three additional vessels at contracted prices. During the first quarter 2021, the U.S. Navy determined it would not exercise the three remaining options under our contract. In connection therewith, we agreed to a change order of $13.1 million with the U.S. Navy to facilitate the transfer of technology, plans and know-how to the customer to enable it to contract with other contractors for the construction of additional vessels. The majority of the change order will be included within contract price for our existing vessel projects and recognized as revenue on a percentage-of-completion basis as the projects progress and the remainder will be recognized as revenue as we facilitate the transfer of the technology, plans and know-how during 2021.
3. IMPAIRMENTS AND (GAIN) LOSS ON ASSETS HELD FOR SALE
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale (“AHFS”) generally represents asset impairments, gains or losses on the sale of assets held for sale and certain nonrecurring items. A summary of our impairments and (gain) loss on assets held for sale for 2020, 2019 and 2018, is as follows:
|
|
Year Ended December 31, 2020
|
|
Impairments and (gain) loss on assets held for sale
|
|
Shipyard
|
|
|
F&S
|
|
|
Corporate
|
|
|
Total
|
|
Impairments of AHFS
|
|
$
|
—
|
|
|
$
|
1,400
|
|
|
$
|
—
|
|
|
$
|
1,400
|
|
Impairments of Jennings Yard assets
|
|
|
29
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29
|
|
Impairments of Lake Charles Yard assets
|
|
|
1,006
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,006
|
|
Impairments of other assets
|
|
|
6
|
|
|
|
868
|
|
|
|
—
|
|
|
|
874
|
|
Loss on AHFS and other
|
|
|
598
|
|
|
|
223
|
|
|
|
—
|
|
|
|
821
|
|
Total
|
|
$
|
1,639
|
|
|
$
|
2,491
|
|
|
$
|
—
|
|
|
$
|
4,130
|
|
|
•
|
Impairments of AHFS – At December 31, 2020, our assets held for sale totaled $8.2 million and primarily consisted of three 660-ton crawler cranes and two drydocks (which were classified as held for sale for sale in the fourth quarter 2020). As discussed below, during 2019 we recorded partial impairments of the crawler cranes. During 2020, we recorded additional impairments of $1.4 million associated with the partial impairment of the cranes. Our estimates of fair value for the cranes were based on broker opinions of value, which were lower than our previous estimates due to changes in market conditions (including the impacts of COVID-19), the limited interest received in the cranes during the period, the specific use nature and
|
F-18
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
|
size of the cranes, and our expectation of a shorter marketing period due to concerns regarding future deterioration of the cranes. See “Impairments of Lake Charles Yard assets” below for discussion of the partial impairments of our drydocks in connection with their classification as held for sale.
|
|
•
|
Impairments of Jennings Yard assets – During the fourth quarter 2020, we closed our Jennings Yard, which is subject to a long-term lease. As discussed below, during 2019 we recorded full impairments of our lease asset and non-moveable facility improvements and partial impairments of our moveable equipment. In connection with the facility’s fourth quarter 2020 closure, we had no material additional impairments of moveable equipment, which was relocated to our Houma Yards. See below for further discussion of the impairments recorded in 2019 and Note 4 for discussion of our Jennings Yard lease. We do not believe the closure of the Jennings Yard will impact our ability to operate our Shipyard Division, and it does not qualify for discontinued operations presentation as we will continue to operate our Shipyard Division from our Houma Yards.
|
|
•
|
Impairment of Lake Charles Yard assets – During the fourth quarter 2020, we closed our Lake Charles Yard, which is subject to a long-term lease. As discussed below, during 2019 we recorded a full impairment of our non-moveable facility improvements and partial impairments of the lease asset, three drydocks and moveable equipment. In connection with the facility’s fourth quarter 2020 closure, we recorded additional impairments of $1.0 million associated with the full impairment of the lease asset and partial impairment of our moveable equipment and drydocks. The moveable equipment and one of the drydocks were relocated to our Houma Yards to be used in our Shipyard Division operations. The remaining two drydocks were relocated to our Houma Yards and are held for sale at December 31, 2020. Our estimates of fair value for the drydocks were based on appraisals for such assets. See below for further discussion of impairments recorded in 2019 and discussion of our assets held for sale and Note 4 for discussion of our Lake Charles Yard lease. We do not believe the closure of the Lake Charles Yard will impact our ability to operate our Shipyard Division, and it does not qualify for discontinued operations presentation as we will continue to operate our Shipyard Division from our Houma Yards.
|
|
•
|
Impairments of other assets – During the fourth quarter 2020, we relocated and consolidated certain assets (including our pipe mill) between our Shipyard Division and F&S Division, and abandoned certain other assets, within our Houma Yards to improve operational efficiency. As a result, during 2020 we recorded impairments of $0.9 million associated with the partial or full impairment of such assets. We determined our impairments of the assets based on scrap value estimates of fair value.
|
|
•
|
Loss on AHFS and other – During 2020, we incurred costs of $0.6 million, primarily associated with the closures of our Jennings Yard and Lake Charles Yard, as discussed above. We also sold a deck barge, two plate roll machines and certain other assets which were classified as held for sale for total proceeds of $1.7 million, resulting in a loss of $0.2 million.
|
|
|
Year Ended December 31, 2019
|
|
Impairments and (gain) loss on assets held for sale
|
|
Shipyard
|
|
|
F&S
|
|
|
Corporate
|
|
|
Total
|
|
Impairments of AHFS
|
|
$
|
324
|
|
|
$
|
7,842
|
|
|
$
|
—
|
|
|
$
|
8,166
|
|
Impairments of assets removed from AHFS
|
|
|
—
|
|
|
|
1,060
|
|
|
|
—
|
|
|
|
1,060
|
|
Impairments of Jennings Yard assets
|
|
|
4,578
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,578
|
|
Impairments of Lake Charles Yard assets
|
|
|
2,998
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,998
|
|
Impairments of inventory and other assets
|
|
|
—
|
|
|
|
400
|
|
|
|
21
|
|
|
|
421
|
|
(Gain) loss on AHFS and other
|
|
|
20
|
|
|
|
(369
|
)
|
|
|
654
|
|
|
|
305
|
|
Total
|
|
$
|
7,920
|
|
|
$
|
8,933
|
|
|
$
|
675
|
|
|
$
|
17,528
|
|
|
•
|
Impairments of AHFS – At December 31, 2019, our assets held for sale totaled $9.0 million and primarily consisted of three 660-ton crawler cranes, two plate bending roll machines and a deck barge. During 2019, we revised our estimates of fair value for the crawler cranes based on updated broker opinions of value and revised our estimates of fair value for the plate bending roll machines based on third party indications of value. Our revised estimates of fair value for these assets were lower than our previous estimates due to changes in market conditions, the limited interest received in the assets during the period, the specific use nature of the assets (and the size of the assets in the case of the cranes), and our expectation of a shorter marketing period due to concerns regarding future deterioration of the assets. As a result of the aforementioned, during 2019 we recorded impairments of $7.8 million associated with the partial impairment of the crawler cranes and plate bending roll machines. During 2019, we also recorded an impairment of $0.3 million associated with the partial impairment of a drydock that was held-for-sale and sold during 2019 for proceeds of $0.6 million.
|
|
•
|
Impairments of assets removed from AHFS – During 2019, we determined that we no longer intended to sell a deck barge (separate from the aforementioned deck barge) and panel line equipment that was previously classified as held for sale, and the assets were reclassified as property, plant and equipment. In connection therewith, the assets were recorded at the lower of their fair value or net book value as if they had been depreciated while being classified as held for sale, which resulted in impairments of $1.1 million during 2019.
|
F-19
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
•
|
Impairments of Jennings Yard assets – During 2019, we reassessed our previous estimates of the future cashflows expected to be generated by our leased Jennings Yard. Our revised forecast gave consideration to recent operating losses experienced on our harbor tug projects in the Jennings Yard and our intention to close the facility. Based on our revised forecast, we determined that the net book value of the Jennings Yard assets exceeded our estimates of future cashflows, which indicated that the assets were impaired. Our Jennings Yard assets primarily consisted of a lease asset, non-moveable facility improvements and certain moveable equipment. We based our impairments of the lease asset and non-moveable facility improvements on our expectation to close the facility, and we based our impairments of the moveable equipment on broker opinions of value for such assets. As a result of the aforementioned, during 2019 we recorded impairments of $4.6 million associated with the full impairment of the lease asset and non-moveable facility improvements and partial impairment of moveable equipment. See above for discussion of our closure of the Jennings Yard in the fourth quarter 2020 and Note 4 for further discussion of our Jennings Yard lease.
|
|
•
|
Impairments of Lake Charles Yard assets – During 2019, we reassessed our previous estimates of the future cashflows expected to be generated by our leased Lake Charles Yard. Our revised forecast gave consideration to previous and then current under-utilization of the facility, our expectations of future work for the facility and the required future capital investment in the facility and its assets. Based on our revised forecast, we determined that the net book value of the Lake Charles Yard assets exceeded our estimates of future cashflows, which indicated that the assets were impaired. Our Lake Charles Yard assets primarily consisted of a lease asset, non-moveable facility improvements, three drydocks and certain moveable equipment. We based our impairments of the lease asset and non-moveable facility improvements on our anticipated cashflows from such assets, and we based our impairments of the drydocks and moveable equipment on appraisals and broker opinions of value for such assets. As a result of the aforementioned, during 2019 we recorded impairments of $3.0 million associated with the full impairment of the non-moveable facility improvements and partial impairment of the lease asset, drydocks and moveable equipment. See above for discussion of our closure of the Lake Charles Yard in the fourth quarter 2020 and Note 4 for further discussion of our Lake Charles Yard lease.
|
|
•
|
Impairments of inventory and other assets – During 2019, we abandoned certain inventory and fixed assets and recorded impairments of $0.4 million associated with the partial impairment of the assets. We determined our impairments of the assets based on scrap value estimates of fair value.
|
|
•
|
Loss on AHFS and other – During 2019, we recorded charges of $0.5 million associated with amounts payable to our former chief executive officer in connection with his retirement during the fourth quarter 2019. Such amounts were paid during 2020 and did not require any future service. We also recorded a gain of $0.4 million associated with the sale of assets held for sale.
|
|
|
Year Ended December 31, 2018
|
|
Impairments and (gain) loss on assets held for sale
|
|
Shipyard
|
|
|
F&S
|
|
|
Corporate
|
|
|
Total
|
|
Gain on sale of South Texas Properties, net
|
|
$
|
—
|
|
|
$
|
(7,724
|
)
|
|
$
|
—
|
|
|
$
|
(7,724
|
)
|
Impairments of AHFS
|
|
|
964
|
|
|
|
1,387
|
|
|
|
—
|
|
|
|
2,351
|
|
Impairments of inventory and other assets
|
|
|
—
|
|
|
|
2,094
|
|
|
|
—
|
|
|
|
2,094
|
|
Gain from insurance proceeds
|
|
|
—
|
|
|
|
(3,571
|
)
|
|
|
—
|
|
|
|
(3,571
|
)
|
Total
|
|
$
|
964
|
|
|
$
|
(7,814
|
)
|
|
$
|
—
|
|
|
$
|
(6,850
|
)
|
|
•
|
South Texas Properties and Gain on Sale of South Texas Properties, net – During 2017, we classified our fabrication yards and certain associated equipment in Ingleside, Texas (“Texas South Yard”) and Aransas Pass, Texas (“Texas North Yard”) (collectively, “South Texas Properties”) as held for sale. During 2018, we completed the sale of portions of the South Texas Properties, which consisted of the following:
|
|
-
|
The sale of certain equipment prior to the sale of the South Texas Properties for proceeds of $1.3 million, and a loss of $0.3 million;
|
|
-
|
The sale of our Texas South Yard for $55.0 million, less selling costs of $1.2 million, for total net proceeds received during 2018 of $53.8 million and a gain of $3.9 million; and
|
|
-
|
The sale of our Texas North Yard for $28.0 million, less selling costs of $0.6 million, for total net proceeds of $27.4 million during 2018 and a gain of $4.1 million.
|
Remaining equipment from the Texas North Yard totaling $18.8 million was not included in the Texas North Yard sale, of which $0.8 million was placed back in use and reclassified to property, plant and equipment, net and $18.0 million was classified as held for sale. The assets held for sale primarily consisted of three 660-ton crawler cranes, a deck barge, two plate bending roll machines and panel line equipment, which were relocated to our Houma Yards.
F-20
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
•
|
Impairments of AHFS – During 2018, we recorded impairments of $1.4 million for certain equipment previously associated with the South Texas Properties prior to their sale, but not sold in connection with the Texas South Yard or Texas North Yard transactions. In addition, during 2018 we recorded an impairment of $1.0 million for a drydock that was held for sale. Our impairments were based on our best estimate of the fair value of the assets.
|
|
•
|
Impairments of inventory and other assets – During 2018, we abandoned certain inventory and other assets and recorded impairments of $2.1 million. We determined our impairments of the assets based on scrap value estimates of fair value.
|
|
•
|
Gain from insurance proceeds – During 2017, buildings and equipment located at our South Texas Properties were damaged by Hurricane Harvey. During 2018, we agreed to a global settlement with our insurance carriers for total insurance payments of $15.4 million, of which $6.0 million had been received in 2017 and $9.4 million was received during 2018. We allocated the insurance recoveries as follows:
|
|
-
|
$1.3 million, recorded during 2017, which offset clean-up and repair related costs incurred directly related to the damage as a result of Hurricane Harvey, resulting in no net gain or loss,
|
|
-
|
$1.5 million recorded during 2017, which offset impairments of two buildings which were determined to be a total loss as a result of Hurricane Harvey, resulting in no net gain or loss;
|
|
-
|
$9.0 million, recorded during 2018, which offset impairments of property and equipment, primarily at our Texas North Yard, resulting in no net gain or loss. The impairments were based upon our best estimate of the decline in fair value of the asset group as a result of Hurricane Harvey; and
|
|
-
|
$3.6 million gain recorded during 2018.
|
Assets held for sale – As discussed above, at December 31, 2020, our assets held for sale primarily consisted of three 660-ton crawler cranes within our Fabrication & Services Division and two drydocks within our Shipyard Division, which were classified as held for sale during 2020. A summary of our assets held for sale at December 31, 2020 and 2019, is as follows (in thousands):
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
Shipyard
|
|
|
F&S
|
|
|
Total
|
|
|
Shipyard
|
|
|
F&S
|
|
|
Total
|
|
Machinery and equipment
|
|
$
|
3,619
|
|
|
$
|
12,780
|
|
|
$
|
16,399
|
|
|
$
|
—
|
|
|
$
|
17,618
|
|
|
$
|
17,618
|
|
Accumulated depreciation
|
|
|
(1,605
|
)
|
|
|
(6,580
|
)
|
|
|
(8,185
|
)
|
|
|
—
|
|
|
|
(8,612
|
)
|
|
$
|
(8,612
|
)
|
Total assets held for sale
|
|
$
|
2,014
|
|
|
$
|
6,200
|
|
|
$
|
8,214
|
|
|
$
|
—
|
|
|
$
|
9,006
|
|
|
$
|
9,006
|
|
4. PROPERTY, PLANT AND EQUIPMENT AND LEASED FACILITIES AND EQUIPMENT
Property, plant and equipment
Property, plant and equipment consisted of the following at December 31, 2020 and 2019 (in thousands):
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2020
|
|
|
2019
|
|
|
|
(in Years)
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
—
|
|
|
$
|
4,972
|
|
|
$
|
4,972
|
|
Buildings
|
|
|
25
|
|
|
|
36,581
|
|
|
|
35,580
|
|
Machinery and equipment
|
|
3 to 25
|
|
|
|
99,621
|
|
|
|
126,622
|
|
Furniture and fixtures
|
|
3 to 5
|
|
|
|
1,375
|
|
|
|
2,288
|
|
Transportation equipment
|
|
3 to 5
|
|
|
|
2,195
|
|
|
|
2,521
|
|
Improvements
|
|
|
15
|
|
|
|
38,934
|
|
|
|
40,377
|
|
Construction in progress
|
|
|
—
|
|
|
|
8,120
|
|
|
|
2,636
|
|
Total property, plant and equipment
|
|
|
|
|
|
|
191,798
|
|
|
|
214,996
|
|
Accumulated depreciation
|
|
|
|
|
|
|
(124,340
|
)
|
|
|
(144,512
|
)
|
Property, plant and equipment, net
|
|
|
|
|
|
$
|
67,458
|
|
|
$
|
70,484
|
|
Depreciation expense for 2020, 2019 and 2018 was $8.6 million, $9.6 million and $10.4 million, respectively. The decrease in depreciation expense for 2020 compared to 2019 was due to assets becoming fully depreciated and assets being impaired in the fourth quarter 2019. The decrease in depreciation expense for 2019 compared to 2018 was due to assets becoming fully depreciated.
F-21
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Leased Facilities and Equipment
At December 31, 2020, our significant leases subject to long-term agreements were as follows:
|
•
|
Corporate office in Houston, Texas consisting of approximately 17,000 square feet of office space. The lease expires in May 2025.
|
|
•
|
Jennings Yard located near Jennings, Louisiana, consisting of a 180-acre yard on the west bank of the Mermentau River approximately 25 miles north of the U.S. Intracoastal Waterway. The lease expires in January 2025 with two ten-year renewal options that would extend the lease through January 2045. During the fourth quarter 2020, we closed our Jennings Yard and do not intend to exercise our renewal options. See Note 3 for discussion of our closure of the Jennings Yard.
|
|
•
|
Lake Charles Yard located near Lake Charles, Louisiana, consisting of a 10-acre yard on the Calcasieu River approximately 17 miles from the GOM, that we sublease from a third party. The sublease expires in July 2023 with three, five-year renewal options (subject to sublessor renewals) that would extend the lease through July 2038. During the fourth quarter 2020, we closed our Lake Charles Yard and do not intend to exercise our renewal options. See Note 3 for discussion of our closure of the Lake Charles Yard.
|
|
•
|
Engineering office in Metairie, Louisiana, consisting of approximately 7,600 square feet of office space. The lease expires in December 2025.
|
At December 31, 2020, our lease asset, current lease liability and long-term lease liability were $1.7 million, $0.6 million and $2.0 million, respectively. As discussed above, we do not intend to exercise the renewal options for our Jennings Yard and Lake Charles Yard, and accordingly, our lease obligations for these facilities exclude the lease renewal options. See Note 3 for discussion of our lease asset impairments recorded during 2020 and 2019.
Future minimum payments under leases having initial terms of more than twelve months are as follows (in thousands):
|
|
Minimum
Payments
|
|
2021
|
|
$
|
726
|
|
2022
|
|
|
737
|
|
2023
|
|
|
653
|
|
2024
|
|
|
564
|
|
2025
|
|
|
219
|
|
Total lease payments
|
|
|
2,899
|
|
Less: interest
|
|
|
(278
|
)
|
Present value of lease liabilities
|
|
$
|
2,621
|
|
Total lease expense for our leased facilities and equipment, which includes lease asset amortization expense and expense for leases with original terms that are twelve months or less, for 2020, 2019 and 2018, was $1.5 million, $1.8 million and $1.9 million, respectively. Cash paid for interest and lease expense for 2020 and 2019 was $1.8 million and $2.0 million, respectively.
The discount rate used to determine the present value of our lease liabilities was based on the interest rate on our LC Facility adjusted for terms similar to that of our leased properties. At December 31, 2020, our weighted-average remaining lease term was approximately 4.0 years and the weighted-average discount rate used to derive our lease liability was 6.7%.
5. CREDIT FACILITIES
LC Facility
On March 26, 2021, we amended our revolving credit facility with Hancock Whitney Bank (“Whitney Bank”), which previously provided for up to $40.0 million of borrowings or letters of credit, had a maturity date of June 30, 2022, included certain quarterly financial covenants and restrictions on our ability to take certain actions, and was secured by substantially all of our assets with a negative pledge on our real property. In connection with the amendment, the facility was modified to remove our ability to make cash borrowings and provides for up to $20.0 million of letters of credit, subject to our cash securitization of future letters of credit and the full amount of outstanding letters of credit, and the maturity date was extended to June 30, 2023. The amended letter of credit facility (“LC Facility”) removed all financial covenants and other restrictions, as well as the pledge of all our assets and the negative pledge on our real property. Commitment fees on the unused portion of the LC Facility are 0.4% per annum and interest on outstanding letters of credit is 2.0% per annum. At December 31, 2020, we had $10.7 million of outstanding letters of credit under the LC Facility.
F-22
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Loan Agreement
On April 17, 2020, we entered into an unsecured loan in the aggregate amount of $10.0 million (“PPP Loan”) with Whitney Bank pursuant to the Paycheck Protection Program (“PPP”), which is sponsored by the Small Business Administration (“SBA”), and is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP provides for loans to qualifying businesses, the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “Permissible Expenses”). The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met. The most significant of the conditions are:
|
•
|
Only amounts expended for Permissible Expenses during the eight-week or 24-week period, as elected by us, following April 17, 2020 (the “Covered Period”) are eligible for loan forgiveness. We have elected an eight-week Covered Period;
|
|
•
|
Of the total amount of Permissible Expenses for which forgiveness can be granted, at least 60% must be for payroll costs, or a proportionate reduction of the maximum loan forgiveness amount will occur; and
|
|
•
|
If employee headcount is reduced, or employee compensation is reduced by more than 25%, during the Covered Period, a further reduction of the maximum loan forgiveness amount will occur, subject to certain safe harbors added by the Flexibility Act.
|
The PPP Loan matures on April 17, 2022, bears interest at a fixed rate of 1.0 percent per annum and is payable in monthly installments commencing on the earlier of the date on which the amount of loan forgiveness is determined or March 17, 2021. During the Covered Period the PPP Loan proceeds were used only for Permissible Expenses, of which approximately 93% was related to payroll costs. On September 29, 2020, we submitted our application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million. Whitney Bank approved our application for forgiveness on December 14, 2020, and our application was forwarded to the SBA for review. As of the filing of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; in the absence of such action and based on guidance we received from our external advisors, we have taken the position that the date for commencement of loan payments has not yet occurred, and we have made no loan payments. Because the amount borrowed exceeded $2.0 million, the PPP Loan and our loan forgiveness application is subject to audit by the SBA. Any portion of the PPP Loan that is not forgiven, together with accrued interest, will be repaid based on the terms and conditions of the PPP Loan and in accordance with the PPP as amended by the Flexibility Act, unless the SBA were to determine that we were not eligible to participate in the PPP, in which case the SBA could seek immediate repayment of the PPP Loan. While we believe we are a qualifying business and have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds only for Permissible Expenses, we can provide no assurances that we will be eligible for forgiveness of the PPP Loan, in whole or in part. Accordingly, we have recorded the full amount of the PPP Loan as debt, which is included in long-term debt, current and long-term debt, noncurrent on our Balance Sheet at December 31, 2020. The current and noncurrent debt classification is based on the terms and conditions of the PPP Loan and in accordance with the PPP as amended by the Flexibility Act, and timing of required repayment absent any loan forgiveness. We intend to reflect the benefit of any loan forgiveness if, and when, our loan forgiveness application is approved by the SBA and after we have reasonable assurance from the SBA that we have met the eligibility and loan forgiveness requirements of the PPP.
Surety Bonds
We issue surety bonds in the ordinary course of business to support our projects. At December 31, 2020, we had $291.2 million of outstanding surety bonds.
F-23
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. INCOME TAXES
Income Tax (Expense) Benefit
A reconciliation of the U.S. federal statutory tax rate to our income tax (expense) benefit for 2020, 2019 and 2018, is as follows (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
U.S. statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
|
0.0
|
%
|
|
|
(0.2
|
)%
|
|
|
(1.0
|
)%
|
State income taxes
|
|
|
9.0
|
%
|
|
|
0.4
|
%
|
|
|
(2.9
|
)%
|
Other
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
1.9
|
%
|
Discrete items
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of common stock
|
|
|
(0.7
|
)%
|
|
|
—
|
|
|
|
(0.1
|
)%
|
Change in valuation allowance
|
|
|
(29.1
|
)%
|
|
|
(21.0
|
)%
|
|
|
(21.7
|
)%
|
Income tax (expense) benefit
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
(2.8
|
)%
|
Significant components of our income tax (expense) benefit for 2020, 2019 and 2018, were as follows (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
(20
|
)
|
|
|
86
|
|
|
|
(317
|
)
|
Total current
|
|
|
(20
|
)
|
|
|
86
|
|
|
|
(317
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,553
|
|
|
|
10,308
|
|
|
|
3,410
|
|
State
|
|
|
2,487
|
|
|
|
87
|
|
|
|
644
|
|
Valuation allowance
|
|
|
(7,968
|
)
|
|
|
(10,385
|
)
|
|
|
(4,308
|
)
|
Total deferred
|
|
|
72
|
|
|
|
10
|
|
|
|
(254
|
)
|
Income tax (expense) benefit
|
|
$
|
52
|
|
|
$
|
96
|
|
|
$
|
(571
|
)
|
Deferred Taxes
Significant components of our deferred tax assets and liabilities at December 31, 2020 and 2019, were as follows (in thousands):
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Impairments of lease assets and inventory
|
|
$
|
184
|
|
|
$
|
644
|
|
Employee benefits
|
|
|
751
|
|
|
|
724
|
|
Accrued losses on uncompleted contracts
|
|
|
3,716
|
|
|
|
3,335
|
|
Stock based compensation expense
|
|
|
225
|
|
|
|
312
|
|
Federal net operating losses
|
|
|
19,345
|
|
|
|
14,885
|
|
State net operating losses
|
|
|
3,620
|
|
|
|
1,678
|
|
R&D and other tax credits
|
|
|
806
|
|
|
|
806
|
|
Other
|
|
|
631
|
|
|
|
437
|
|
Total deferred tax assets
|
|
|
29,278
|
|
|
|
22,821
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property, plant and equipment and AHFS
|
|
|
(5,825
|
)
|
|
|
(7,523
|
)
|
Prepaid insurance
|
|
|
(512
|
)
|
|
|
(402
|
)
|
Total deferred tax liabilities
|
|
|
(6,337
|
)
|
|
|
(7,925
|
)
|
Net deferred tax assets
|
|
|
22,941
|
|
|
|
14,896
|
|
Valuation allowance
|
|
|
(23,054
|
)
|
|
|
(15,086
|
)
|
Net deferred taxes (1)
|
|
$
|
(113
|
)
|
|
$
|
(190
|
)
|
|
(1)
|
Amounts are included in other noncurrent liabilities on our Balance Sheet.
|
F-24
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At December 31, 2020 and 2019, we had total DTAs of $29.3 million and $22.8 million, respectively (including U.S. federal net operating loss(es) (“NOL(s)”) DTAs of $19.3 million and $14.9 million, respectively). On a periodic and ongoing basis, we evaluate our DTAs (including our NOL DTAs) and assess the appropriateness of our valuation allowance(s) (“VA(s)”). In assessing the need for a VA, we consider both positive and negative evidence related to the likelihood of realizing our DTAs. If, based upon the available evidence, our assessment indicates that it is more likely than not that some or all of the DTAs will not be realized, we record a VA. Our assessments include, among other things, the amount of taxable temporary differences that will result in future taxable income, the value and quality of our backlog, evaluations of existing and anticipated market conditions, analysis of recent and historical operating results (including cumulative losses over multiple periods) and projections of future results and strategic plans, as well as asset expiration dates. As a result of our assessment and due to cumulative losses for the three years ended December 31, 2020, we believe the negative evidence outweighs the positive evidence with respect to our ability to realize our U.S. federal NOL DTAs, and accordingly, at December 31, 2020 and 2019, we had VAs of $23.1 million and $15.1 million, respectively, offsetting our total DTAs.
At December 31, 2020, we had gross U.S. federal NOL carryforwards (excluding VAs) of $92.1 million, of which $42.3 million will expire in 2037 with the remaining U.S. federal NOL carryforwards eligible to be carried forward indefinitely, subject to an 80% limitation on taxable income in each year. We had gross state NOL carryforwards (excluding VAs) of $45.1 million, which will expire from 2035 through 2040.
Uncertain Tax Positions
Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense. At December 31, 2020 and 2019, we had no material reserves for uncertain tax positions. Tax returns subject to examination by the U.S. Internal Revenue Service are open for years after 2014.
7. RETIREMENT AND LONG-TERM INCENTIVE PLANS
Defined Contribution Plan
We sponsor a defined contribution plan for eligible employees that is qualified under Section 401(k) of the Internal Revenue Code, which includes voluntary employee pre-tax contributions and Company-matching contributions, with potential additional discretionary contributions determined by our Board of Directors. Our matching contributions were temporarily suspended in the second quarter 2016 and reinstated in the second quarter 2019. For 2020 and 2019, we contributed $0.7 million and $0.8 million, respectively to the plan.
Long-Term Incentive Plans
Under our long-term incentive plans (“Incentive Plans”), the Compensation Committee of our Board of Directors may grant cash-based and equity-based awards to eligible employees and non-employee directors, including restricted stock awards, stock option awards and cash-based and stock-based performance awards. The Compensation Committee determines the value of each award, as well as the terms, conditions, performance measures, and other provisions of the award. A summary of our Incentive Plans, and the number of shares of our common stock that may be issued under each plan, is as follows:
|
•
|
Long-Term Incentive Plan (approved on February 13, 1997) – 1,000,000 shares;
|
|
•
|
2002 Long-Term Incentive Plan (approved on April 24, 2002 and amended on April 26, 2006) – 500,000 shares;
|
|
•
|
2011 Stock Incentive Plan (approved on April 28, 2011) – 500,000 shares; and
|
|
•
|
2015 Stock Incentive Plan (approved on April 23, 2015 and amended on May 22, 2020) – 2,500,000 shares.
|
At December 31, 2020, we had 1,611,928 aggregate shares available for future issuance under our Incentive Plans.
Restricted Stock and Stock Option Awards – Restricted stock awards include shares of restricted stock and restricted stock units and are subject to transfer restrictions, forfeiture provisions and other terms and conditions of the Incentive Plans. Restricted stock awards to our employees generally have a three-year graded vesting period and awards to our non-employee directors vest over a six-month period. The total initial fair value for these awards is determined based upon the closing price of our stock on the date of grant applied to the total number of shares granted. The fair value is expensed on a straight-line basis over the applicable vesting period.
F-25
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A summary of activity for our restricted stock awards for 2020, 2019 and 2018 is as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
Number
of Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
Per Share
|
|
|
Number
of Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
Per Share
|
|
|
Number
of Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
Per Share
|
|
Restricted shares, beginning of period
|
|
|
286,148
|
|
|
$
|
8.30
|
|
|
|
526,438
|
|
|
$
|
11.56
|
|
|
|
445,126
|
|
|
$
|
12.83
|
|
Granted
|
|
|
470,004
|
|
|
|
3.80
|
|
|
|
170,936
|
|
|
|
6.09
|
|
|
|
440,185
|
|
|
|
11.16
|
|
Vested
|
|
|
(113,988
|
)
|
|
|
8.89
|
|
|
|
(255,449
|
)
|
|
|
11.41
|
|
|
|
(250,219
|
)
|
|
|
10.93
|
|
Forfeited
|
|
|
(26,520
|
)
|
|
|
12.14
|
|
|
|
(155,777
|
)
|
|
|
11.81
|
|
|
|
(108,654
|
)
|
|
|
12.01
|
|
Restricted shares, end of period
|
|
|
615,644
|
|
|
|
4.61
|
|
|
|
286,148
|
|
|
|
8.30
|
|
|
|
526,438
|
|
|
|
11.56
|
|
Compensation expense for our restricted stock awards was $1.1 million, $1.8 million and $2.8 million for 2020, 2019 and 2018, respectively. At December 31, 2020, we had $1.9 million of unrecognized compensation expense related to our restricted stock awards. This cost is expected to be recognized over a weighted-average period of 1.9 years. The total fair value of restricted stock awards granted during 2020 was $1.8 million and the total fair value of restricted stock awards that vested during 2020 was $0.4 million. At December 31, 2020, we had no outstanding stock option awards and no stock option awards were made during 2020, 2019 or 2018. The income tax benefit (expense) associated with our share-based compensation arrangements was not significant for 2020, 2019 or 2018.
Stock-Based Performance Awards – Stock-based performance awards represent awards payable in cash for which the amount payable is determined based upon our total shareholder return during the performance period compared to an industry peer group as determined by our Compensation Committee. The cash payment occurs in the period immediately following the completion of the performance period. The fair value of the awards is calculated each reporting period using a Monte Carlo simulation model and is expensed on a straight-line basis over the applicable performance period, with cumulative adjustments for changes in the fair value between reporting periods. During 2018 and 2017, stock-based performance awards were granted with a three-year performance period ending December 31, 2020 and 2019, respectively.
During 2020, we did not recognize any compensation expense related to our stock-based performance awards with a performance period ended December 31, 2020, as the minimum target for pay-out was not achieved. During 2019, we recognized a benefit of $1.7 million (due to the reversal of previously recognized expense) and during 2018 we recognized compensation expense of $1.1 million, related to our stock-based performance awards with a performance period ending December 31, 2019.
Cash-Based Performance Awards – Cash-based performance awards represent awards payable in cash based on the achievement of annual income targets. The cash payment occurs in the period immediately following the completion of the performance period. During 2019, cash-based performance awards were granted with a three-year performance period ending December 31, 2021. One-third of the award is earned each year in the performance period, provided the applicable annual income target is achieved, or is forfeited if the applicable annual income target is not achieved. During 2020 and 2019, we recognized no compensation expense related to cash-based performance awards as the minimum income target for 2020 and 2019 was not achieved. The target amount payable associated with the 2021 performance period is approximately $0.5 million if the target income metric is achieved.
8. COMMITMENTS AND CONTINGENCIES
We are subject to various routine legal proceedings in the normal conduct of our business, primarily involving commercial disputes and claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the U.S. and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, we believe that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on our financial position, results of operations or cash flows.
MPSV Termination Letter
During the first quarter 2018, we received notices of termination from our customer of the contracts for the construction of two MPSVs within our Shipyard Division. We dispute the purported terminations and disagree with the customer’s reasons for such terminations. Pending the resolution of the dispute, we have ceased all work and the partially completed vessels and associated equipment and materials remain at our facility in Houma, Louisiana. The customer also made claims under the performance bonds issued by the Surety in connection with the construction of the vessels, which total $50.0 million. We have discussed with the Surety our disagreement with the customer's purported terminations and its claims and continue to confer with the Surety regarding the dispute with the customer.
F-26
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
On October 2, 2018, we filed a lawsuit against the customer to enforce our rights and remedies under the applicable construction contracts. Our lawsuit disputes the propriety of the customer’s purported terminations of the construction contracts and seeks to recover damages associated with the customer’s actions. The customer filed its response to our lawsuit denying many of the allegations in the lawsuit and asserting a counterclaim against us seeking, among other things, declaratory judgment as to the validity of the customer’s purported terminations of the construction contracts and other purported claims for which the customer is seeking damages in an unspecified amount. We filed a response to the counterclaim denying all of the customer’s claims. The customer subsequently filed an amendment to its counterclaim to add claims by the customer against the Surety. The customer also filed a motion for partial summary judgment with the trial court seeking, among other things, to obtain possession of the vessels. A hearing on the motion was held on May 28, 2019, and the customer's request to obtain possession of the vessels was denied by the trial court. The customer subsequently filed a second motion for partial summary judgment re-urging its previously denied request to obtain possession of the vessels. A hearing on the second motion was held on November 5, 2019, and the customer’s request to obtain possession of the vessels was again denied by the trial court. Thereafter, the customer requested that the appellate court exercise its discretion and review and reverse the trial court’s denial of the customer’s second motion. We opposed the discretionary appellate review request of the customer, and that review, as well as the pending lawsuit, were stayed during the pendency of the customer’s Chapter 11 bankruptcy case that is referenced below. However, the customer’s Chapter 11 bankruptcy plan was confirmed, and accordingly, the appellate matter and the lawsuit are no longer stayed. The appellate court has since denied the customer’s appellate review request and the lawsuit will proceed in the ordinary course. Discovery in connection with that lawsuit is ongoing and no trial date or other deadlines have been scheduled in connection with that lawsuit.
On May 19, 2020, the customer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The customer’s prepackaged Chapter 11 plan of reorganization was subsequently confirmed by the bankruptcy court and that plan of reorganization is effective. In connection with its bankruptcy case, on June 3, 2020, the customer filed a separate bankruptcy adversary proceeding against us in which it again sought to obtain possession of the vessels. In response, we filed a motion to dismiss the adversary proceeding and to allow the dispute regarding the vessels and the construction contracts to continue in state court where our lawsuit against the customer is currently pending. On September 1, 2020, a hearing was held in connection with the motion to dismiss; however, the bankruptcy court’s decision was delayed to allow the parties an opportunity to mediate their dispute. The parties engaged in mediation until January 26, 2021 when the customer unilaterally and voluntarily dismissed its adversary proceeding seeking possession of the vessels. The mediation between the parties was not successful.
We are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contracts and defend against the customer’s claims. At December 31, 2020 and December 31, 2019, other noncurrent assets on our Balance Sheet included a net contract asset of $12.5 million, which consisted of our contract asset, accrued contract losses, and deferred revenue balances at the time of the customer's purported terminations of the contracts. We continue to hold first priority security interests and liens against the vessels that secure the obligations owed to us by the customer.
Insurance
We maintain insurance coverage for various aspects of our business and operations. However, we may be exposed to future losses through our use of deductibles and self-insured retentions for our exposures related to third party liability and workers' compensation claims. We expect liabilities in excess of any deductibles and self-insured retentions to be covered by insurance. To the extent we are self-insured, reserves are recorded based upon our estimates, with input from legal and insurance advisors. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change. See Note 2 for discussion of insurance deductibles incurred during 2020 associated with damage caused by Hurricane Laura.
Letters of Credit and Surety Bonds
We obtain letters of credit under our LC Facility or surety bonds from financial institutions to provide to our customers in order to secure advance payments or guarantee performance under our contracts, or in lieu of retention being withheld on our contracts. Letters of credit under our LC Facility are subject to cash securitization of the full amount of the outstanding letters of credit. In the event of non-performance under a contract, our cash securitization with respect to the letter of credit supporting such contract would become property of Whitney Bank. With respect to a surety bond, any payment in the event of non-performance is subject to indemnification of the Surety by us. When a contract is complete, the contingent obligation terminates, and letters of credit or surety bonds are returned. See Note 5 for further discussion of our LC Facility and surety bonds.
Environmental Matters
Our operations are subject to extensive and changing U.S. federal, state and local laws and regulations, as well as the laws of other countries, that establish health and environmental quality standards. These standards, among others, relate to air and water pollutants and the management and disposal of hazardous substances and wastes. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes. In connection
F-27
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
with the historical operation of our facilities, including those associated with acquired operations, substances which currently are or might be considered hazardous were used or disposed of at some sites that will or may require us to make expenditures for remediation. We believe we are in compliance, in all material respects, with environmental laws and regulations and maintain insurance coverage to mitigate exposure to environmental liabilities. We do not believe any environmental matters will have a material adverse effect on our financial condition, results of operations or cash flow.
Leases
We maintain operating leases for our corporate office and certain operating facilities and equipment. See Note 4 for further discussion of our leases.
9. INCOME (LOSS) PER SHARE
The following table presents the computation of basic and diluted loss per share for 2020, 2019 and 2018 (in thousands, except per share data):
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(27,375
|
)
|
|
$
|
(49,394
|
)
|
|
$
|
(20,378
|
)
|
Weighted average shares (1)
|
|
|
15,308
|
|
|
|
15,227
|
|
|
|
15,032
|
|
Basic and diluted loss per common share
|
|
$
|
(1.79
|
)
|
|
$
|
(3.24
|
)
|
|
$
|
(1.36
|
)
|
(1) We have no dilutive securities.
10. OPERATING SEGMENTS
During 2019, we operated and managed our business through three operating divisions (“Fabrication”, “Shipyard”, and “Services”) and one non-operating division (“Corporate”), which represented our reportable segments. In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form an integrated new division called Fabrication & Services. The operational combination will enable us to capitalize on the best practices and execution experience of the former divisions and maximize the utilization of our resources. As a result, we currently operate and manage our business through two operating divisions (“Shipyard” and “Fabrication & Services”) and one non-operating division (“Corporate”), which represent our reportable segments. Accordingly, the segment results (including the effects of eliminations) for our Fabrication and Services Divisions for each of 2019 and 2018 were combined to conform to the presentation of our reportable segments for 2020. In addition to the division combination, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division to better align the supervision and construction of these vessels with the capabilities and expertise of our Shipyard Division. Accordingly, results for these projects for 2019 (the projects had no results for 2018) were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. Our two operating divisions and Corporate Division are discussed below:
Shipyard Division – Our Shipyard Division fabricates newbuild marine vessels, including OSVs, MPSVs, research vessels, tugboats, salvage vessels, towboats, barges, drydocks, anchor handling vessels, and lift boats; provides marine repair and maintenance services, including steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs, and propeller, shaft, and rudder reconditioning; and performs conversion projects to lengthen vessels and modify vessels to permit their use for a different type of activity or enhance their capacity or functionality. These activities are performed at our Houma Yards. See Note 3 for discussion of our closure of the Jennings Yard and Lake Charles Yard.
Fabrication & Services Division – Our Fabrication & Services (“F&S”) Division fabricates modules, skids and piping systems for onshore refining, petrochemical, LNG and industrial facilities and offshore facilities; fabricates foundations, secondary steel components and support structures for alternative energy developments and coastal mooring facilities; fabricates offshore production platforms and associated structures, including jacket foundations, piles and topsides for fixed production and utility platforms, as well as hulls and topsides for floating production and utility platforms; fabricates other complex steel structures and components; provides services on offshore platforms, including welding, interconnect piping and other services required to connect production equipment and service modules and equipment; provides on-site construction and maintenance services on inland platforms and structures and industrial facilities; and performs municipal and drainage projects, including pump stations, levee reinforcement, bulkheads and other public works. These activities are performed at our Houma Yards.
F-28
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Corporate Division – Our Corporate Division includes costs that do not directly relate to our two operating divisions. Such costs include, but are not limited to, costs of maintaining our corporate office, executive management salaries and incentives, board of directors' fees, litigation related costs, and costs associated with overall corporate governance and being a publicly traded company. Costs incurred by our Corporate Division on behalf of our operating divisions are allocated to the operating divisions. Such costs include, but are not limited to, human resources, insurance, information technology and accounting.
We generally evaluate the performance of, and allocate resources to, our divisions based upon gross profit or loss and operating income or loss. Segment assets are comprised of all assets attributable to each division. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information for our segments as of and for the three-year period ended December 31, 2020, is as follows (in thousands):
|
|
Year Ended December 31, 2020
|
|
|
|
Shipyard
|
|
|
F&S
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
153,698
|
|
|
$
|
99,485
|
|
|
$
|
(2,224
|
)
|
|
$
|
250,959
|
|
Gross profit (loss) (1)
|
|
|
(19,274
|
)
|
|
|
1,523
|
|
|
|
—
|
|
|
|
(17,751
|
)
|
Operating income (loss) (1)
|
|
|
(24,343
|
)
|
|
|
5,893
|
|
|
|
(8,709
|
)
|
|
|
(27,159
|
)
|
Depreciation and amortization expense
|
|
|
3,254
|
|
|
|
5,061
|
|
|
|
302
|
|
|
|
8,617
|
|
Capital expenditures
|
|
|
6,499
|
|
|
|
4,522
|
|
|
|
191
|
|
|
|
11,212
|
|
Total assets (4)
|
|
|
121,992
|
|
|
|
54,966
|
|
|
|
54,385
|
|
|
|
231,343
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
Shipyard (5)
|
|
|
F&S (5)
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
168,466
|
|
|
$
|
137,169
|
|
|
$
|
(2,327
|
)
|
|
$
|
303,308
|
|
Gross loss (2)
|
|
|
(16,025
|
)
|
|
|
(657
|
)
|
|
|
(317
|
)
|
|
|
(16,999
|
)
|
Operating loss (2)
|
|
|
(26,428
|
)
|
|
|
(13,696
|
)
|
|
|
(9,897
|
)
|
|
|
(50,021
|
)
|
Depreciation and amortization expense
|
|
|
4,167
|
|
|
|
4,984
|
|
|
|
413
|
|
|
|
9,564
|
|
Capital expenditures
|
|
|
1,827
|
|
|
|
1,963
|
|
|
|
—
|
|
|
|
3,790
|
|
Total assets (4)
|
|
|
103,409
|
|
|
|
77,402
|
|
|
|
71,966
|
|
|
|
252,777
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
Shipyard
|
|
|
F&S
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
96,424
|
|
|
$
|
126,695
|
|
|
$
|
(1,872
|
)
|
|
$
|
221,247
|
|
Gross profit (loss) (3)
|
|
|
(10,472
|
)
|
|
|
4,607
|
|
|
|
(1,331
|
)
|
|
|
(7,196
|
)
|
Operating income (loss) (3)
|
|
|
(14,396
|
)
|
|
|
4,558
|
|
|
|
(9,827
|
)
|
|
|
(19,665
|
)
|
Depreciation and amortization expense
|
|
|
4,229
|
|
|
|
5,826
|
|
|
|
295
|
|
|
|
10,350
|
|
Capital expenditures
|
|
|
2,003
|
|
|
|
1,460
|
|
|
|
18
|
|
|
|
3,481
|
|
Total assets (4)
|
|
|
97,197
|
|
|
|
102,719
|
|
|
|
58,374
|
|
|
|
258,290
|
|
|
(1)
|
Gross profit (loss) and operating income (loss) for 2020 includes project charges of $16.6 million for our Shipyard Division and project improvements of $2.7 million for our F&S Division. Operating income (loss) also includes impairment charges and net losses on the sales of assets held for sale of $1.6 million and $2.5 million for our Shipyard Division and F&S Division, respectively, charges of $1.3 million associated with damage caused by Hurricane Laura at our Lake Charles Yard for our Shipyard Division, and a gain of $10.0 million associated with the settlement of a contract dispute for our F&S Division. See Note 2 for further discussion of our project and hurricane impacts and Note 3 for further discussion of our facility closures and impairments.
|
|
(2)
|
Gross loss and operating loss for 2019 includes project charges of $12.3 million and $4.9 million for our Shipyard Division and F&S Division, respectively. Operating loss also includes impairment charges and net gains on the sales of assets held for sale of $7.9 million and $8.9 million for our Shipyard Division and F&S Division, respectively, and restructuring costs of $0.7 million for our Corporate Division. See Note 2 for further discussion of our project impacts and Note 3 for further discussion of our impairments.
|
|
(3)
|
Gross profit (loss) and operating income (loss) for 2018 includes project charges of $6.7 million and $2.4 million for our Shipyard Division and F&S Division, respectively. Operating income (loss) also includes impairment charges of $1.0 million for our Shipyard Division and a net benefit of $7.8 million for our F&S Division, primarily related to a gain on the sale of our South Texas Properties of $7.7 million and a gain on insurance recoveries of $3.6 million, offset partially by impairments of $3.5 million. See Note 2 for further discussion of our project impacts and Note 3 for further discussion of our asset impairments.
|
|
(4)
|
Cash and short-term investments are reported within our Corporate Division.
|
|
(5)
|
Revenue of $9.2 million and gross loss and operating loss of $5.1 million for 2019, and contract assets and contract receivables of $6.0 million as of December 31, 2019, associated with our two forty-vehicle ferry projects were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020.
|
F-29
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table presents selected unaudited consolidated financial information on a quarterly basis for 2020 and 2019 (in thousands, except per share data):
|
|
March 31,
2020
|
|
|
June 30,
2020
|
|
|
September 30,
2020
|
|
|
December 31,
2020 (1)
|
|
Revenue
|
|
$
|
78,555
|
|
|
$
|
59,974
|
|
|
$
|
54,869
|
|
|
$
|
57,561
|
|
Gross loss
|
|
|
(254
|
)
|
|
|
(1,703
|
)
|
|
|
(7,817
|
)
|
|
|
(7,977
|
)
|
Net income (loss)
|
|
|
5,905
|
|
|
|
(5,537
|
)
|
|
|
(12,337
|
)
|
|
|
(15,406
|
)
|
Basic and diluted income (loss) per share
|
|
|
0.39
|
|
|
|
(0.36
|
)
|
|
|
(0.81
|
)
|
|
|
(1.01
|
)
|
|
|
March 31,
2019
|
|
|
June 30,
2019
|
|
|
September 30,
2019
|
|
|
December 31,
2019 (2)
|
|
Revenue
|
|
$
|
67,605
|
|
|
$
|
80,456
|
|
|
$
|
75,802
|
|
|
$
|
79,445
|
|
Gross profit (loss)
|
|
|
553
|
|
|
|
(1,598
|
)
|
|
|
(2,685
|
)
|
|
|
(13,269
|
)
|
Net loss
|
|
|
(3,042
|
)
|
|
|
(5,248
|
)
|
|
|
(6,779
|
)
|
|
|
(34,325
|
)
|
Basic and diluted loss per share
|
|
|
(0.20
|
)
|
|
|
(0.34
|
)
|
|
|
(0.44
|
)
|
|
|
(2.26
|
)
|
|
(1)
|
Gross loss and net loss for the fourth quarter 2020 includes project charges of $8.8 million for our Shipyard Division. Net loss for the fourth quarter 2020 also includes impairment charges and net losses on the sales of assets held for sale of $1.6 million and $2.4 million for our Shipyard Division and F&S Division, respectively. The fourth quarter 2020 was also impacted by the under-recovery of overhead costs for our F&S Division, and to a lesser extent, our Shipyard Division. See Note 2 for further discussion of our project impacts and Note 3 for further discussion of our impairments.
|
|
(2)
|
Gross loss and net loss for the fourth quarter 2019 includes project charges of $10.2 million and $3.8 million for our Shipyard Division and F&S Division, respectively. Net loss for the fourth quarter 2019 also includes impairment charges of $7.6 million, $9.0 million and $0.7 million for our Shipyard Division, F&S Division and Corporate Division, respectively. The fourth quarter 2019 was also impacted by the under-recovery of overhead costs for our F&S Division, and to a lesser extent, our Shipyard Division. See Note 2 for further discussion of our project impacts and Note 3 for further discussion of our impairments.
|
12. SUBSEQUENT EVENTS
On March 26, 2021, we amended our revolving credit facility with Whitney Bank. See Note 5 for further discussion of our amendment.
F-30
GULF ISLAND FABRICATION, INC.